Gold drops as slow growth crimps metal appeal as inflation hedge

In Asia, hoarding of precious metal remains strong

Gold tumbled from the highest in more than week as the U.S. economy expanded less than forecast, driving commodities lower and crimping demand for the precious metal as a hedge against inflation.

Gross domestic product rose at a 2.5% annual rate, Commerce Department figures showed today. The median estimate of 86 economists surveyed by Bloomberg called for a 3% gain. The metal rebounded 11% through yesterday after touching $1,321.50 on April 16, the lowest in more than two years. The Standard & Poor’s GSCI index of 24 raw materials slumped as much as 1.1%.

“Inflation is one thing you do not have to worry about if the world’s largest economy is struggling and instead the concern should be deflation,” Michael Gayed, the chief investment strategist at New York-based Pension Partners LLC, which advises on $190 million in assets, said in a telephone interview. “And when you have a rally like the one we saw in gold, there is bound to be some profit-taking.”

Gold futures for June delivery declined 0.7% to $1,451.60 an ounce at 12:58 p.m. on the Comex in New York, retreating for the first time in three days. Prices earlier rose as much as 1.6%, mainly on on increased physical buying.

Bullion gained 4.8% this week through yesterday as demand for coins, bars and jewelry surged after futures dropped 13% in two sessions through April 15.

In China, gold buyers were hoarding the metal and demand is “strong” in Dubai, Bernard Sin, the head of currency and metal trading at bullion refiner MKS (Switzerland) SA in Geneva, said by e-mail today.